March 2016 Budget – 16 March 2016
It is important to remember that many of the measures announced today by George Osborne will take effect in future years. We need to look at past budgets as well as today’s budget to understand the measures that take effect from 1 April 2016 (or 6 April 2016)
The tax-free personal allowance for 2016/17 is £11,000 (currently £10,600)
Today’s budget announced that the allowance for 2017/18 will rise to £ 11,500
The basic rate of tax remains at 20%
For 2016/17 the higher rate of tax at 40% starts when income exceeds £43,000 (currently £ 42,385).
This increases to £ 45,000 from 2017/18.
Class 2 NI has seen some changes recently. You will recall that Class 2 NI used to be collected by a monthly direct debit (or a paper bill) and that this stopped for 2015/16 onwards. Instead, Class 2 NI is to be collected via your self-assessment tax return which normally collects income tax and Class 4 NI. Class 2 NI is to be abolished from April 2018. Class 4 NI will be reformed to include entitlement to the state pension that is currently obtained via Class 2.
From April 2017 individuals with small earnings from eg ebay trading or renting via Airbnb or renting a driveway won’t have to declare the first £1,000 of income. If income exceeds that figure, the £1,000 can be deducted in place of accounting for all their expenses.
Remember that from April 2016 the way dividends are to be taxed is changing – there is a £5,000 allowance for dividends and then all dividends will be taxed at 7½% rising to 32½% for higher rate taxpayers and 38.1% for those earning over £150,000.
From April 2016 tax will no longer be deducted from bank or building society interest. The first £1,000 of interest will be free of tax (£500 for higher rate taxpayers).
From 1 April 2020 the rate of corporation tax will be 17%
The current rate is 20% and will reduce as follows:
From 1 April 2017 19%
From 1 April 2018 19%
From 1 April 2019 19%
From 1 April 2020 17%
There are some reforms for the treatment of corporation tax losses, but I cannot see that these will affect any of my clients.
Loans to participators (i.e. shareholders). Sometimes shareholders/directors have an overdrawn loan account. From 6 April 2016 tax will be charged at 32½%, an increase from 25%
Capital Gains Tax
CGT is currently charged at 18% and 28% for basic rate and higher rate taxpayers respectively. These rates are being reduced to 10% and 20% for all disposals from 6 April 2016 with the exception that the disposal of residential properties will remain subject to the existing 18% and 28% rates (note – this is still lower than basic and higher rates of income tax). So BTL landlords and those with second homes will continue to pay CGT at the existing rates of 18% and 28%
The annual exemption is rising from £10,600 now to £11,000 for 2016/17.
Your home (Principal Private Residence) is still exempt from CGT.
Many areas benefit from Small Business Rate Relief whereby business premises with a rateable value of £6,000 or less will have their rates reduced to nil. A sliding scale applies for rates between £6,001 and £12,000. Full business rates are payable when the rateable value reaches £12,000. Today the chancellor announced that the £6,000 threshold is to be increased to £12,000 from April 2017, with full business rates payable form £15,000 RV onwards.
The principles of IR35 are still on the statute books. Today’s budget announced a change that will affect workers engaged via their own company to a “public sector body”. From April 2017, the onus falls on the public sector body (or agency if one is used) to ascertain the tax treatment of the worker and apply the rules. Until now, the onus fell on the worker to review the situation. I feel this is a “trial” and will be extended to all situations sometime in the future.
Insurance Premium Tax
The rate of IPT recently increased from 6% to 9½%. From 1 October 2016 the rate increases to 10%.
Stamp Duty on commercial property
SDLT on commercial property transactions from 17 March 2016 will be calculated on the new banded basis that was introduced for residential property last year – this replaces the slab basis. The rates will be 0% up to £150,000, 2% between £150,001 to £250,000 and 5% above £250,001.
If an employer makes a termination payment over £30,000, NI will now be payable on the excess over £30,000.